Variable Benefit Unlocking and Buy-out Annuities

Summary#

These are proposed federal rules called Regulations Amending Certain Regulations Concerning Pensions (published April 4, 2026) from the Department of Finance. They would let some retirees unlock part of their pension while staying in their workplace plan, set rules and notice requirements for pension “buy-out” annuities sold to insurers, and make small technical updates to pension rules. The rules are at the proposal stage and are open for a 30-day comment period starting from publication.

What it does#

• Variable benefit unlocking

  • Defines a variable benefit account as having a locked-in portion and a non locked-in portion under the Pension Benefits Standards Regulations, 1985.
  • Allows a retiree who receives variable benefits to transfer, on a one-time basis, up to 50% of the locked-in portion into the non locked-in portion. The unlocked portion would not be subject to the usual annual maximum withdrawal limits.
  • Requires the member’s spouse or common-law partner to consent using a new Form 5.3. The form must be sworn before an authorized official (expected notarization cost $20 to $40).
  • Adds clarifications to existing transfer and unlocking forms so people know when funds become ineligible for other unlocking options.

• Life annuities (“buy-out” annuities)

  • Sets conditions for life annuities a defined benefit plan administrator may buy to fully transfer pension obligations to an insurer (implementing changes from the Budget Implementation Act, 2019, No. 1 and the Pension Benefits Standards Act, 1985).
  • Requires those annuities to be non‑assignable and not surrenderable or commutable during the annuitant’s lifetime (with limited exceptions).
  • Requires immediate annuities to preserve the same options (like joint-and-survivor choices) and deferred annuities to offer the same benefits/options the member would have had had they stayed in the plan.
  • Requires the plan administrator to give a written explanation of any plan amendment that allows such annuity purchases within 60 days, and to give notice of each annuity purchase within 60 days with a detailed list of items (dates, names, issuer contact, what benefits are covered, whether any surplus rights remain, start dates, amounts, etc.).
  • Adjusts the Assessment of Pension Plans Regulations so people for whom a buy-out annuity has been purchased are removed from the count of plan “beneficiaries” when calculating OSFI assessment fees.

• Other technical updates

  • Replaces a dated reference to the “Handbook of the Canadian Institute of Chartered Accountants” with generally accepted accounting principles used in Canada.
  • Small wording and translation fixes and tweaks to who must receive mailed information.

• Process note

  • These are proposed regulations (not yet law). The government invites comments during the stated 30-day period.

Who's affected#

• Members and retirees of federally regulated pension plans who
  • receive variable benefits from a defined contribution plan (they would gain the unlocking option).
  • are former members or survivors of defined benefit plans for whom a plan administrator might buy an annuity (their pension could be paid by an insurer).
• Plan administrators and employers who run federally regulated pension plans. They would need to offer or document the new unlocking choice and meet notice requirements when purchasing buy-out annuities.
• Regulated life insurance companies that issue annuities, because the rules specify what annuities qualify for a full transfer of plan liability.
• Office of the Superintendent of Financial Institutions (OSFI), because the rules affect how beneficiaries are counted for assessment fees and how plans are supervised.
• Small employers are unlikely to be affected, because these changes target plans typically run by larger employers in federally regulated sectors.
• If it is unclear who is affected: the rules apply only to pensions covered by the federal framework (for example, banking, inter‑provincial transport, navigation and shipping, federal Crown corporations, and private sector employment in the territories) — not to most provincially regulated plans or certain federal public service plans.

Why it matters#

• More flexibility for retirees who stay in their workplace plan: someone taking variable benefits could access up to 50% of their locked-in funds without having to move money to an outside locked-in vehicle. That can help cover big expenses or bridge income until other benefits (like CPP or Old Age Security) are claimed.
• Stronger, clearer protections when employers buy annuities: the new rules aim to make sure annuities bought to remove pension obligations from a plan preserve the same benefit options and that former members and survivors get clear written notice about what changed and who will pay their pension.
• Potential cost and paperwork: unlocking within the plan requires a sworn spouse consent (the expected notarization cost is about $20 to $40). Administrators must prepare and send notices (but the government says these are not expected to create significant new costs).
• It affects pension security and plan sustainability: enabling full transfer of obligations to regulated insurers may reduce employer pension risk and protect retirees from employer insolvency, while the unlocking change increases retiree control over savings.
• These are proposed changes. Stakeholders can comment during the 30-day consultation window starting from the publication date (April 4, 2026).